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Monday, February 19, 2018

Russia took the opportunity to successfully borrow money

The Finance Ministry has placed the so-called 10-year Eurobonds for another $ 1.25 billion – despite the fact that in reality the demand for bonds were significantly higher. High demand for Russian debt securities was a very good sign showing how really foreign investors assess the state of the Russian economy. And it’s a very big contrast compared to the debts that Ukraine takes.

Russia dorazmestit Eurobonds maturing in 2026 in the amount of $ 1.25 billion. The reference price is 106% of par, which corresponds to a yield of 3.99% per annum. The organizer of the bonds, and VTB Capital, the clearing is carried out NSD and Euroclear.

“The days of Imperial or Yeltsin’s Russia, when the Russian government was heavily dependent on foreign creditors, gone forever”

First, the placement of Eurobonds told the Agency a source in banking circles, it is officially confirmed the Ministry of Finance.

The Russian Agency on may 24, 2016 for the first time since 2013 has placed the sovereign Eurobonds. Russia then also placed 10-year Eurobonds at 4.75% per annum, only the organizer also made “VTB Capital”.

Neither then nor now sanctions do not become for Russia an obstacle to external borrowing. A source in banking circles said that by the end of bookbuilding, the demand for Eurobonds exceeded $ 7.5 billion, RIA “Novosti”. That is, the demand for Russian debt was almost five times higher than supply ($1.25 billion). The situation was similar in may: sold 1.75 billion dollars when the demand of 7 billion dollars.

“To raise capital in the debt market – definitely a good move. In principle, the Treasury could increase the amount of accommodation. Situation now on the Russian sovereign debt is good, the yield corresponds to 2013 year”, – considers the Director of analytical Department of company “Alpari” Alexander Razuvaev.

The maximum amount of foreign borrowings of the Russian Federation this year in the budget law were set at $ 3 billion. Therefore, taking into account the already placed 1.75 billion second tranche of Eurobonds-2026 could not be more than 1.25 billion However, if desired, the government can set a limit and more. “Yes, the plan for this year 3 billion have been implemented, but it may be extended, if the price of oil will spring a surprise in the form of lower, for example, to 30 dollars”, – said Azret Guliyev from IFK “solid”.

Now is the time to embed successful, but it could be even more successful after November 8 – results of elections of the President of the United States will have a significant impact on the investment attractiveness of Russian debt securities, does not preclude Azret Guliyev. “So, I think next year the program offerings will be even more – 5-7 billion dollars”, – he said.

In fact, in Russia the decline of the economy and of oil revenues there are two basic ways to replenish the shortfall in budget revenues – external loan or privatization. However, with the sale of Rosneft and Bashneft this year decided to wait.

The more that external loans are now the best option, says Razuvaev. “The Russian stock market is one of the cheapest in the world. Next year, Russian stocks are likely to be more expensive, the oil is above plus there will be a partial lifting of sanctions,” he said.

With regard to the privatization of two key assets – Rosneft and Bashneft, then it must be treated still with the mind, what takes time. “Sell state assets, immediately and at any price is a bad choice. Moreover, there is something to cover the budget deficit, for example, the international reserves of the CBR – 400 billion dollars”, – says Alexander Razuvaev. In his opinion, it is necessary first to settle the government’s stake in Bashneft to Rosneft capital, and then exchange a share of third party shareholders, including the government of Bashkiria, on the securities of Rosneft, and then sold.

The ransom of Russian debts can participate both Russian and foreign business. “In a situation when the centers of emission continues pumping liquidity in the global economies with major Central banks as part of QE (Bank of England, Bank of Japan, ECB, fed), the estimated yield of 4% Russian bonds look quite attractive. Given the experience of previous placements, even in the absence of foreign banks that can’t take part in it because of the sanctions regime, the paper will be in demand from both Russian and foreign investors”, – said Alexei Antonov from “ALOR Broker”. It just happened.

Moreover, Russian businessmen have the money for the redemption of Russian debt is also available. For example, Surgutneftegas, which has a cash cushion in excess of 35 billion dollars. “Oilmen don’t want in a difficult time to maintain budget, payouts to pensioners?! We are not talking about confiscation, just to lend,” – says Razuvaev.

Now Russia can afford to assume, as the ratio of external debt to GDP it is one of the lowest in the world (unlike, for example, from the Ukraine, where every new installment is even greater tightening in the credit bondage). “The days of Imperial or Yeltsin’s Russia, when the Russian government was heavily dependent on foreign creditors, are gone forever,” – says Razuvaev. Low debt load is just what attracts foreign investors to the Russian placements of debentures, despite the frankly low ratings of the country and the sanctions, adds Antonov.

For comparison: Ukraine, for example, give a loan, to be able just to patch up the budget hole. The chance to get money in any other financial structure, except as the IMF and Kiev are reduced to zero. Besides, Ukraine has to pay a high political price for getting these loans.

Eurobonds Ukraine now produces only under the guarantee of the United States, without them no one dares to mess with a country that, in fact, defaulted on its sovereign obligations (on a debt of $ 3 billion to Russia). This way Kiev places for three consecutive years by $ 1 billion under the guarantee of the United States in exchange for their freedom.

For Russia, the foreign debt is not critical. This is just one of the ways to reverse the decline of revenues due to low oil prices. “In my opinion, the placement of Eurobonds Russia will be continued next year. If the current rates of world Central banks and stability in the commodity markets think that the rate of 3 billion per year will be saved. But the next round of growth of the dollar, for example as a result of the fed rate hike, it will be increased. To link is necessary with the continuing decline of oil revenues,” – he expects Alexei Antonov.

In fact, the amount of the loan this year, $ 3 billion is small, so problems with the budget deficit not completely solve. Therefore, the Russian Federation continues to spend reserves especially accumulated in the fat years. Soon will be the question of privatization of state assets, and tax increases may be inevitable.

However, there is another way. “We need to develop the market of internal ruble debt. Better to borrow in your own currency. In extreme cases you can solve the problem of debt via the printing press. And, of course, this additional demand for ruble. Interest rates in the world right now is about zero. To borrow money on the international market and to buy the Russian debt is not very tricky, but very profitable strategy. Work so many international funds,” suggests Alexander Razuvaev.


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